US EARLY MORNING: Global equities are falling on Tuesday amid risk-off trade; Fed Chair Powell ahead

RISK-OFF: Global equity markets are seeing downside amid risk-off trading conditions. US equity futures are trading lower (YM -0.8%, RTY -1.0%, ES -1.3%, NQ -1.9%) led by the tech-heavy Nasdaq-100, where social media and advertising names are being pressured after Snap Inc's (SNAP) profit warning on guidance it issued only a month ago; SNAP cited a macroeconomic environment that has deteriorated further and faster than it anticipated, and it will be slowing hiring. Analysts were surprised by the announcement given that SNAP indicated in April that its guidance might be on the conservative side. RBC's analysts said the SNAP update will sound the alarms on the deteriorating macro's evolving effects on digital advertising, but while the read will be negative for the space, RBC questions how much of this is SNAP-specific vs the broader industry; "given the company's implied May/June growth at low-single digits/mid-single digits, risk/reward remains challenging on SNAP even with the sell-off, particularly in the event that other ad players aren't hurt as badly - which we think is possible," the bank wrote.

SOUR APAC, EUROPE TRADE: Meanwhile, the overnight APAC session was soured by the negative handover from Wall Street, while traders were also contending with growth fears as UBS and JPMorgan lowered their outlook for Chinese GDP this year as April's activity data was hamstrung by China's zero COVID policies. In Europe, ECB President Lagarde once again reiterates that interest rates could exit negative territory in Q3 (she is due to speak again later today). Additionally, the European day has seen the release of PMI data, which have generally been mixed; the German report said that the outlook remained subdued, while historically high prices continue, while alluding to inflationary pressures across the economy; the French report mentioned clients being dissuaded from placing orders due to higher prices charged, while other customers chose to adopt a wait-and-see approach amid geopolitical uncertainty and supply-chain issues, though acknowledged that this was offset by stronger demand within the service sector. The Eurozone report saw the manufacturing, services, and composite indices all disappoint expectations; prices charged rose at the second-highest rate; the data is consistent with "solid" quarterly growth of 0.6% in Q2, S&P Global said, but it remains to be seen how long the service sector rebound can persist for, especially given the rising cost of living, while manufacturing weakness remains a concern and is showing signs of spilling over to some parts of the services economy. In terms of the policy outlook, S&P said that such high price pressures, accompanied by resilient GDP growth, will tilt policymakers at the ECB towards a more hawkish stance.

US DAY AHEAD: In the US day, we will get the release of S&P’s flash PMI data for May, which are expected to pare back (manufacturing seen at 57.5 from 59.2, while services is seen at 55.2 from 55.6), which will help form expectations ahead of the release of the more influential ISM surveys at the beginning of June. However, the main event of the day will be remarks due from Fed Chair boss Powell, who will deliver pre-recorded remarks at the NCAIED. We expect Powell will reiterate the Committee’s primary focus is on inflation, and he will continue to back 50bps rate rises at the June and July meetings (his comments from last week can be recapped here). One area to watch is if Powell ­– like his colleagues Bostic, Bullard, George – begins introducing some dovish padding around his comments that suggests that the Fed could pause hikes when they have risen to neutral. Our full day ahead calendar can be accessed here.

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24 May 2022 - 09:34- EquitiesData- Source: Newsquawk

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